The so-called Silver Tsunami – the rapid growth of Australia’s older population – has arrived. Policymakers have raised concerns that this demographic shift could adversely affect the labour market by lowering labour force participation. This concern is based on two assumptions:
– Extensive margin: Older people have lower employment rates than younger people; and
– Intensive margin: Older workers work fewer hours than younger workers.
But are these concerns misplaced? Do these assumptions reflect reality?
With little Australian research on the interactions between ageing and labour supply decisions, it is unclear how population ageing will affect the labour market’s structure. However, new international research by economists Kotschy, Bloom and Scott may shed some light. They argue that focusing only on chronological age is a mistake – older workers now are not the same as older workers from even 10 years ago.
First, the participation rate of older workers is on the rise relative to younger workers. Research by e61 has documented that the care economy is employing an increasing share of workers and driving the workforce re-entry of many older men and women.
This stands in stark contrast to the United States, where workforce participation has been declining since the end of World War II, largely driven by declining participation rates among older and prime-age men.
Second, while the share of older workers in full-time jobs continues to fall – partly because of the expansion of employment for this group –their share of total full-time employed is actually increasing.
In 2010, the share of full-time jobs held by older workers was around the same as that held by the youngest workers in Australia. But more recently, it has begun to converge toward the rates of prime-age workers in general. This is even though many of the older workers entering the workforce are becoming employed in part-time jobs. Essentially, full-time employment is growing, just less quickly.
Health may be playing a role.
Evidence from the United States and the United Kingdom suggest that health deterioration is not a particularly large driver of labour supply decisions of workers close to retirement, accounting for 15 per cent of the employment decline between ages 50 and 70.
Health influences both the extensive and intensive margins. On one hand, good health might allow workers to work longer hours at all ages (intensive margin) and remain employed (extensive margin). On the other hand, it might also raise the value placed on leisure time, reducing the labour supply of older workers.
Whether health deterioration explains age-related reductions in labour supply in Australia remains an open question.
The International Monetary Fund (IMF) recently released a report on the “Silver Economy”, suggesting that Australia should expect to see an extra 0.5 percentage points to average GDP growth over the next 25 years due to healthy ageing policies, such as preventative care and population health measures.
Overall, current fears about the adverse impacts of ageing on the labour market may be overstated. While the impact of the ageing population on the labour market is still unfolding, these trends highlight the importance of health policy in shaping long-term labour market trends as the population becomes more vulnerable to ill-health and frailty.
With right policy settings, the labour market consequences of population ageing may take longer to crest than would initially be expected.
